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The Burden Of Borrowing

Higher education is critical to the future success of Americans. In addition to the inherent benefits of a higher education, a college degree is worth 75% more than a high school diploma or more than $1,000,000 over a lifetime in the workforce. However, as college costs continue to swell, students are increasingly shouldering high levels of debt to pay for a college education.

Thirty-nine percent (39%) of student borrowers now graduate with unmanageable levels of debt, meaning that their monthly payments are more than 8% of their monthly incomes. According to new data from the Department of Education’s National Postsecondary Student Aid Study (NPSAS), not only are the majority of students turning to loans to finance college, but debt levels are also escalating. In 1999-2000, 64% of students graduated with student loan debt, and the average student loan debt has nearly doubled over the past eight years to $16,928.

Often the students who are most likely to graduate with debt are the same students who experience financial hardship after graduation. In 1999-2000, 71% of students from families with incomes less than $20,000 graduated with debt, compared to 44% of students from families with incomes more than $100,000. In all likelihood, students from low-income backgrounds receive limited financial assistance from and may have financial obligations to their families after graduation.

In addition, some groups of students are more likely to face unmanageable debt burden after graduation. Fifty-five percent (55%) of African-American student borrowers and 58% of Hispanic student borrowers graduated with unmanageable debt burden.

Data also suggest that Pell grant funding impacts borrowing trends among low-income students. Over the past decade, when Pell grant funding was cut, the percentage of low-income students who borrowed and the average debt among these students increased. In contrast, in recent years, when Congress increased Pell grant funding, the percentage of low-income students who borrowed stabilized, while growth in the average debt among these students slowed.

There are several possible explanations for increases in student borrowing. First, the strength of the Pell grant has declined from covering 84% of tuition at a four-year public institution in 1975-76 to 39% today. 1 While Congress has increased funding in recent years, the Pell grant maximum has not been able to keep up with inflation and rising tuition costs. As a result, low-income students are forced to borrow to cover that unmet need. Second, wealthy families may be shifting more of the cost of college from savings to student loans. Also, as tuition increases faster than inflation and median income, students overall are facing increasing levels of need.

We need to look for solutions that make college more affordable and protect students from unmanageable debt burden. Congress should increase grant aid funding, reduce the cost of student loans, and provide flexibility within the student loan program to help make college more affordable for all Americans.